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it deems that somebody has sold an unregistered security that doesn’t clearly take advantage of any exemptions, to Americans and where Americans are harmed. Or even if Americans aren’t harmed, yes, the SEC should police that. And they will.
We’ve done a huge amount of legal work. I was the individual who drove the legal work for the Ethereum token launch. So, I’ve been doing it for a pretty long time, compared to other people in this space. And we think we understand this stuff really well.
We were not surprised at all, [we were] encouraged, pretty much, by how the SEC reported on or analyzed the DAO. It really indicated that they do need to get up to speed on how the technology works a little better. But they’re going to apply the same thinking, the same rules that they’ve been applying for decades—root out fraud and look at the details of every single situation, based on the Howey test and other things that they deem are relevant.
So, they very explicitly said that they’re not interested in throwing the baby out with the bathwater. We talked to regulators all around the world, and they’re all very excited about this technology. It’s going to drive growth.
X: But aren’t token sales, can’t those be considered unregistered securities?
JL: Some of them.
X: So, they have to look at it on a case-by-case basis?
JL: Exactly. Also, this technology is going to change everything pretty rapidly. It is catching on in a decentralized way. It’s catching on virtually everywhere in the world. And it’s going to serve as a tremendous growth engine for your country.
While you may have a young lawyer at the SEC who wants to make his or her career on a big case, they’re also probably really aware of the fact that they don’t want to be the person that kills blockchain for the United States or that casts a pall or a chill on this growth engine. I don’t see any Western country doing something really drastic or foolish.
In China, there were just a ton of total copycat knockoffs with zero intent to deliver on the project. It was a lot of real crap going on there. For that reason, it made sense to call a pause. … And China is a different kind of governance system than the U.S. They like to have some tendrils in different systems so that they can understand what’s going on and control what’s going on when necessary. So, I think it’s just the space got big enough so that it’s now relevant to them. They need to make sure that it’s architected in a way that fits in with their society.
They’ll be back in six months.
X: What’s your response to critics dismissive of cryptocurrencies, like Jamie Dimon?
JL: Jamie has his own currency that he cares about. [Laughs.]
X: What do you think are his motives for being that dismissive? Trying to protect the status quo?
JL: Yeah, certainly protect status quo. Blockchain represents a force for universal disintermediation.
We love banks, and we love bankers. We work with lots of them. We build systems with some of them. We love financial services. But we’re moving into a world where 12-year-olds won’t have bank accounts. We’re moving into a world where we’re going to be able to custody our own value tokens, move them around at will. We’re moving into a world where banks as the major intermediaries are going to have that intermediary function drastically reduced in value and scope. We’ll still need financial services, but the banks themselves are likely to shrink up significantly.
X: What happens to the venture capital industry?
JL: I think it evolves. We’re working really hard to bring a lot of that technology into our space. We started with this notion that you had to do one and done, that you’re not going to be able to do different rounds of token launches. There’s just a huge amount of great thinking and technology in the investment space—the traditional or legacy investment space. We need to port a huge amount of that over into our space, because our space is kind of [the] Wild West still. ConsenSys is working hard on that.
X: What needs to be ported over?
JL: Standard ways of representing what a token launch is; standard disclosures; tracking claims that are made by different projects; [taking a] rigorous look at compliance. There are lots of efforts in this space that are focusing on many of those aspects. [We also need to do] just analytics and analysis. We may come out with a collaborative system that enables us and a bunch of other analysts to share information on all these projects.
One thing that’s really cool about this space is you really do have to disclose. There are a lot of people who are too eager to jump in. But there are a lot of very sophisticated people who are analyzing things, and if something smells in a white paper, or if there’s no real substance that is shown for a project, people are going to be all over that pretty quickly. And there’s going to be a Reddit thread and a Medium article, and you’re going to be outed pretty quickly. It doesn’t mean there isn’t a silly amount of irrational exuberance around projects that look pretty good, but projects that are obviously ill-structured get called to task pretty quickly. And that information gets disseminated very rapidly and discussed.
As it matures, it’ll be a much better system.
X: What are the biggest hurdles to overcome in the next year or two?
JL: The constraints of time and space. We’re just building really, really quickly. We have a ton coming at us. We have a lot of really talented people in our company and in the ecosystem, and we need more people, more time. But things are going really well.
It’s complicated stuff, and it takes a lot of work to get things right. It’s even more complicated, even more difficult than building the World Wide Web because you didn’t really have money as a native element on the World Wide Web. It was sort of built in, pasted on later. But here we have value, billions of dollars worth of value, that is sitting there sort of raw, as a foundational building block of this ecosystem. And so, we need to be careful and prudent in how layers of that infrastructure are built.
There will be lots of missteps. But it’s definitely going to be a better system over time [that will be] more decentralized and have, essentially, trust baked in all the way through, or security baked in all the way through.
X: Blockchain is built on the Internet, but does it become bigger than the Internet?
JL: One of my [presentation] slides basically tried to indicate that Web 1.0 was, say, X, and Web 2.0—social and mobile—was, say, 10x. Web 3.0—trusted transactional infrastructure on blockchain—will be 100x. And once you start bringing in the entire machine economy, that’s going to be even bigger. Absolutely, it’s going to be enormous.